International Economics Update
June 2002
Copyright (C) 2002 The International Economics Network
http://www.internationaleconomics.net
Marginal Notes.
A new institutionalist research methodology for analyzing crises, as espoused in the Gourevitch (1986) volume, is an excellent alternative to analyzing the Asian financial crisis. Gourevitch's central thesis is best captured by his pithy description of the core argument:
"Each crisis involves a sequence of events which can be summarized quickly. In the prosperous years preceding the crisis, a policy approach and support coalition developed. Then came crisis, challenging both policy and coalition. Crisis opened the system of relationships, making politics and policy more fluid. Finally a resolution was reached, closing the system for a time until the next crisis." (p.21-22)
Further:
"To understand those linkages requires the analyst to work from both ends of the chain to examine both politicians seeking to construct coalitions, and actors seeking benefits." (p.239)
To concretize the argument, Gourevitch introduces five alternative policy handles, namely, liberalism/neoclassicism, socialization of ownership and planning, protectionism, demand stimulus, and mercantilism. To contextualize these into the current analysis, these shall be reorganized (and the discussion will be limited to) the three more coherent categories of liberalism, protectionism, and interventionism.
Liberalism, here defined to mean the pursuit of generally pro-market policies, including that of free trade and unrestricted capital flows. This was the former policy consensus that existed in many of the East Asian economies, as embodied by their embracing of export-oriented, foreign capital-led growth. This existing status quo, however, was subsequently challenged by the Asian crisis, leading to a rise in protectionist politics.
The contending policy of import substitution with capital controls was the perfect counterfoil to a discontented and restless populace, many of whom viewed the crisis as an invention of Western interests, possibly due to their 'envy' of the economic successes of the region. In response, then, these states adopted different counter-power structures in order to cope with the challenges of the crisis. Malaysia, for example, imposed capital controls and increased the levels of protection afforded to the indigenous bumiputra industries. In Thailand, powerful business interests that had intimate links with the ruling elite pressed for bailouts of failed businesses using tax dollars, and in Indonesia, religious sentiment grew to fundamentalist proportions, leading to the riots of 1998 and the overthrow of the Suharto government.
Resolution in the states was eventually attained through a policy approach that can best be termed as interventionist. The state was no longer a passive actor in the economy - through a mix of domestic business pressures, IMF restructuring policies, and the clamor of a citizenry strapped with rapidly increasing unemployment - there began a realignment among societal actors. The old-school business conservatives, with their view of labor primarily as a commodity, were now challenged by the emergence of business progressives, a phenomena well captured in Thailand by the rapid rise of the Thai Rak Thai party. Similarly, even in the business-dominated corporatism of Singapore, the government was forced to introduce social aid packages to help lower-income workers through the period.
In Indonesia and Malaysia, there was a further role played by associations. Religious interest groups and pro-bumiputra lobbyists began to feature in the post-crisis political decisionmaking process. Clearly, there were multiplicities of new actors that have redefined the institutional landscape in both the current and post-crisis stages, and these define specific historical trajectories that can explain the divergences of the East Asian countries' experiences.
References
Gourevitch, P. (1986) Politics in Hard Times: Comparative Responses to International Economic Crises. Ithaca: Cornell University Press.
Website Additions.
No major new additions this month, unfortunately, although updates continue to be made on the news and research papers section.
Interesting Readings.
1. Fair Trade, Free Trade: BRIDGES Weekly carries an article about a new Oxfam report that highlights the hypocricies of the existing world trading system. It is distinctive in that it supports the spirit of free trade, though not its execution ('OXFAM Report Highlights Hypocrisies In Global Trading System', http://www.ictsd.org/weekly/02-04-16/story4.htm). Close on its heel is more recent news on how the Bush administration continues to confound the world trading system with its ambivalent policy actions ('Farm trade', http://www.economist.com/agenda/displaystory.cfm?story_id=1130110; 'Washington under fire for 'damaging' trade curbs', http://tm0.com/sbct.cgi?s=185070289&i=538075&m=1&d=2672831).
2. Narrow Skirting: Looks like the IMF - in its latest World Economic Outlook - has declared that the world managed to avoid global recession, albeit by the skin of its teeth - largely thanks to the economies of India and China (surprise, surprise). Steve Roach ('Global: The World's New Growth Cushion', http://www.morganstanley.com/GEFdata/digests/20020419-fri.html#anchor0) and the Economist ('World economy', http://www.economist.com/agenda/displaystory.cfm?story_id=1086633) provide two takes on the issue. Ken Rogoff has an interesting (and mildly contrarian) view ('The Recession that Almost Was', http://www.imf.org/external/np/vc/2002/040502.htm). The WEO itself can be downloaded from the IMF site: http://www.imf.org/external/pubs/ft/weo/2002/01/index.htm
3. Politico Contagio: It would appear that contagion has found its way into the radars of political scientists - or so Moises Naim, writing in the Financial Times, would argue ('A virulent new strain of crisis', http://tm0.com/sbct.cgi?s=185070289&i=531584&m=1&d=2647147).
4. Takes on Terror: Two alternatives to how to handle the hatching of terrorism in developing countries - through aid ('Poverty causes terror? Either way, aid works', http://tm0.com/IHT/sbct.cgi?s=131847734&i=542934&m=1&d=2680753) and, more interestingly - an convincingly - through education ('To Build a Country, Build a Schoolhouse', http://www.nytimes.com/2002/05/27/opinion/27SEN.html).
5. Forex Fax: The currency markets appear to be in a period of transition, with it being unclear which direction they will go. The Economist appraises the situation in its usual pithy and engaging style ('Currency markets', http://www.economist.com/agenda/displaystory.cfm?story_id=1152741).
6. A Now for Something Completely Different: Robert Wright, author of Nonzero, has applied game-theoretic analysis to the current Middle East situation, providing valuable insights and a fresh perspective. A strongly recommended read, in Slate ('Both Sides Now', http://slate.msn.com/?id=2065830).
7. Regionalism and the WTO: The WTO recently organized a conference on regionalism. Check out the program and the downloadable conference papers: http://www.wto.org/english/tratop_e/region_e/sem_april02_e/sem_april02_prog_e.htm
Endnotes.
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